The incremental server business continues to break through, and subsequent new products will greatly improve cost performance. The company adopts a “vertical and horizontal integration” strategy. “Horizontal” indicates that Longxin is an ecological enterprise that mainly sells chips. “Vertical” means adopting a flexible and mobile business model to sell some boards and machines in specific fields at a specific stage. In 2022, Longxin Zhongke launched the 16-core server chip 3C5000, and in 2023, it also launched the 32-core server chip 3D5000, officially expanding the server business. On January 18, 2024, the company responded to questions from investors, saying that the server business is currently growing rapidly, but it is still relatively small and is an incremental business. The company sells server boards and white-label servers, and some machine manufacturers have already begun using Longxin chips as servers. The company will continue to develop server CPUs, and the 6000 series server products launched later will greatly improve server performance and cost performance. The general-purpose processor performance of the 6000 series server products has been doubled, IO has been greatly improved, and inter-chip interconnect performance has also been greatly improved. Compared to the 5000 series and 6000 series server products are smaller in size, lower in cost, and competitive in the open market. In addition, servers are based on the Linux system, and the application in specific industries is relatively fixed. The ecological barrier is lower than that of PCs. Longxin makes server products for certain industries and gains a competitive advantage through cost performance.
Industrial control chips are dominated overseas but have not formed platformization, and the widespread penetration of domestic chips has begun to be steadily replaced.
Unlike general-purpose CPUs in PCs and servers, industrial control chips have not yet formed a platform-based competitive pattern. The industrial control field requires a high degree of product flexibility and customization. Every industry has customized software and hardware, and quality standards vary. The same products are usually difficult to directly reuse in different scenarios, and the underlying parameters need to be adjusted according to different scenarios, so the industrial control market is currently showing a fragmented pattern. The domestic industrial control sector is mainly dominated by products from overseas manufacturers. Take the PLC market as an example. According to Huajing Industry Research Institute, the localization rate of China's medium and large PLC market in the first quarter of 2023 was 5.5%. Currently, localization replacement in the industrial control field is in its infancy. It involves a wide range of industries, such as energy, transportation, finance, telecommunications, water conservancy, e-government, public services, defense technology, education, etc.; the market is relatively scattered, including industrial office computers, servers, business systems, and industry terminals. Longxin has exercised excellent underlying technical capabilities in development and ecological construction over the past 20 years. Independent product development and guarantee companies can flexibly adjust underlying parameters in the face of different industrial control scenarios, thus maintaining a strong competitive advantage in the industrial control market.
Profit forecast: Revenue for 2023-2025 was $7.09/10.85/1.65 billion, up -4.0%/53.0%/52.1% year-on-year, and net profit to mother was -2.02/0.21/288 billion yuan respectively, maintaining the “buy” rating.
Risk warning: Business development falls short of expectations, and industry competition intensifies.